Value of pension is freaking me out

Thrugelmir

NedS said:

Deleted_User said:

NedS said:

Deleted_User said:

1) why is the fact you are retiring in 3/4 years an issue? - if you are buying an annuity, then it certainly is but if you are going into drawdown, its not.

Because 5 years before and after retirement is the period of vulnerability to sequence of return risk.  Withdrawing from a pot temporarily reduced by the market (aka “drawdown”) can be devastating.  Basics. 

True, but if the outcome is 'devastating', the Safe Withdraw Rate for drawdown wasn't very safe, was it?

Quite right. There is no “safe” constant withdrawal rate from a highly variable pot subject to market whims.  Its a misnomer. 

Erm, well clearly there is - the problem is that you will only know with hindsight in 30 years time that it was safe. Pretty sure 1% would be a SWR for a well diversified portfolio regardless of sequence of returns.

Inflation would erode the buying power over 30 years. 

Kim1965

dB pensions, take the stress out of retirement.

Thrugelmir

Kim1965 said:

dB pensions, take the stress out of retirement.

Annuities will be back in fashion in a few years time. 

Prism

Thrugelmir said:

NedS said:

Deleted_User said:

NedS said:

Deleted_User said:

1) why is the fact you are retiring in 3/4 years an issue? - if you are buying an annuity, then it certainly is but if you are going into drawdown, its not.

Because 5 years before and after retirement is the period of vulnerability to sequence of return risk.  Withdrawing from a pot temporarily reduced by the market (aka “drawdown”) can be devastating.  Basics. 

True, but if the outcome is 'devastating', the Safe Withdraw Rate for drawdown wasn't very safe, was it?

Quite right. There is no “safe” constant withdrawal rate from a highly variable pot subject to market whims.  Its a misnomer. 

Erm, well clearly there is - the problem is that you will only know with hindsight in 30 years time that it was safe. Pretty sure 1% would be a SWR for a well diversified portfolio regardless of sequence of returns.

Inflation would erode the buying power over 30 years. 

I would usually assume that the SWR rises with inflation keeping the income level with costs.

[Deleted User]

NedS said:

Deleted_User said:

NedS said:

Deleted_User said:

1) why is the fact you are retiring in 3/4 years an issue? - if you are buying an annuity, then it certainly is but if you are going into drawdown, its not.

Because 5 years before and after retirement is the period of vulnerability to sequence of return risk.  Withdrawing from a pot temporarily reduced by the market (aka “drawdown”) can be devastating.  Basics. 

True, but if the outcome is 'devastating', the Safe Withdraw Rate for drawdown wasn't very safe, was it?

Quite right. There is no “safe” constant withdrawal rate from a highly variable pot subject to market whims.  Its a misnomer. 

Erm, well clearly there is - the problem is that you will only know with hindsight in 30 years time that it was safe. Pretty sure 1% would be a SWR for a well diversified portfolio regardless of sequence of returns.

None of it is “safe” and “pretty sure” isn’t good enough to say “safe”.  Safe is a deterministic claim. The future is probabilistic rather than deterministic. And unknown in advance, hence we call it “future”. 

There will always be a non zero probability of failure as long as you are invested in a market.  SWR was developed based on (I think) a 90 year dataset in the US.  Saying next 30 years (one third of the interval!)  will be like sampling from that dataset is a statistical fallacy. 

Putting stats aside, the basic mathematical point is that you can’t have a guaranteed constant withdrawal rate from a highly variable function. 

Workerdrone

Putting stats aside, the basic mathematical point is that you can’t have a guaranteed constant withdrawal rate from a highly variable function. 

On a slight segue. I do roll my eyes when I read comments on articles from people who refuse to save into a pension because they don't trust the markets. Those people have likely given themselves a 100% guarantee of a difficult retirement.

westv

Thrugelmir said:

Kim1965 said:

dB pensions, take the stress out of retirement.

Annuities will be back in fashion in a few years time. 

They were probably saying that a few years ago. 

Audaxer

Deleted_User said:

NedS said:

Deleted_User said:

NedS said:

Deleted_User said:

1) why is the fact you are retiring in 3/4 years an issue? - if you are buying an annuity, then it certainly is but if you are going into drawdown, its not.

Because 5 years before and after retirement is the period of vulnerability to sequence of return risk.  Withdrawing from a pot temporarily reduced by the market (aka “drawdown”) can be devastating.  Basics. 

True, but if the outcome is 'devastating', the Safe Withdraw Rate for drawdown wasn't very safe, was it?

Quite right. There is no “safe” constant withdrawal rate from a highly variable pot subject to market whims.  Its a misnomer. 

Erm, well clearly there is - the problem is that you will only know with hindsight in 30 years time that it was safe. Pretty sure 1% would be a SWR for a well diversified portfolio regardless of sequence of returns.

None of it is “safe” and “pretty sure” isn’t good enough to say “safe”.  Safe is a deterministic claim. The future is probabilistic rather than deterministic. And unknown in advance, hence we call it “future”. 

There will always be a non zero probability of failure as long as you are invested in a market.  SWR was developed based on (I think) a 90 year dataset in the US.  Saying next 30 years (one third of the interval!)  will be like sampling from that dataset is a statistical fallacy. 

Putting stats aside, the basic mathematical point is that you can’t have a guaranteed constant withdrawal rate from a highly variable function. 

If you don't think even a 1% withdrawal rate is safe there is little point in being invested, because you could take 1% per year rising with inflation from a savings account, and it would still last throughout a 30 year retirement. 

Thrugelmir

westv said:

Thrugelmir said:

Kim1965 said:

dB pensions, take the stress out of retirement.

Annuities will be back in fashion in a few years time. 

They were probably saying that a few years ago. 

A clock is always right at least twice a day. 

westv

Thrugelmir said:

westv said:

Thrugelmir said:

Kim1965 said:

dB pensions, take the stress out of retirement.

Annuities will be back in fashion in a few years time. 

They were probably saying that a few years ago. 

A clock is always right at least twice a day. 

Unless it's a 24 hour clock.